The UAE real estate investment market witnessed upward pressure on yields throughout 2018 mainly due to a two key sectors - office and the logistics and industries sectors, according to Knight Frank, a leading independent global property consultancy.
The office sector has seen a widening in yields between prime and secondary, with well located, best in class assets still commanding a premium to the wider market and continuing to attract robust interest from investors, said the industry expert in its UAE 2019 Real Estate Investment Market Report.
Investments in logistics and industrial assets continue to be perceived as an attractive proposition by the market, though during the course of the year there had been minimal transaction activity in this sector, mainly due to a dearth of credible investment opportunities, it stated.
Knight Frank pointed out that education and healthcare generally remained attractive as investment targets, in part due to the extended lease structures on offer, which were not prevalent in other sectors.
However, with fundamentals in some instances under pressure and some recent insolvencies in this sector, investors are taking a much more granular approach to the covenant strength of the tenant, it added.
On the retail sector, tthe UK property expert said it continues to face headwinds, though there is a divergence between the wider retail market and well located community retail with established catchments, which continue to perform reasonably.
The hospitality market too has seen resilience to a degree in occupancy, these Average Daily Rates (ADR) have been under pressure across the UAE, it added.
The real estate industry expert said financing rates have risen over the course of the last 12 months, putting pressure on returns, though these now seem to be peaking.
Joseph Morris, Partner, Middle East Capital Markets, said: "The divergence between prime yields and secondary continues to widen, reflecting the fact that investors are willing to pay a premium for assets seen as lower risk, in core locations and with credit-worthy tenants."
The logistics and industrial sector remains of high interest to investors, though viable investment opportunities are rare, he noted.
Morris pointed out that more corporates were exploring sale and leasebacks as a way to free up capital for core business activities.
There remains significant amount of capital in the region allocated to real estate, much of which remains undeployed due to a lack of quality assets available, he noted.
"We expect a fairly resilient market for well let, institutional quality, single ownership assets, which will continue to attract investor interest," he added.-TradeArabia News Service